HWI Chartered Accountants Auckland

Portfolio Investment Entities (PIE’s) can be useful at reducing the tax rate on investments to 30%. This presents a saving opportunity for individual investors with a marginal tax rate of 38% and also for trust’s that have an income tax rate of 33%, provided that there is a PIE available that will match the returns available in other investment opportunities.

There are a number of different types of PIE’s:

• Listed PIE’s are listed on a recognised New Zealand stock exchange, these investments pay tax at the corporate rate of 30% and an investor can treat any distribution as exempt income.
  
  
• Unlisted PIE’s, the majority of unit trust type investments have become Unlisted PIE’s. Investors elect a tax rate (called a Prescribed Investor Rate or PIR) and provided they choose the correct rate for their circumstances the income can be excluded from the investor’s tax returns.

The managers of the unlisted PIE are responsible for calculating and paying the correct tax to Inland Revenue based on each investor’s income from the PIE and tax rate elected by the investor. Tax is usually paid by selling enough of each investor’s units to meet their tax obligations and refunds are usually reinvested into the fund on behalf of the investor.

For example an individual with a marginal tax rate of 38% can elect a PIR of 30% and effectively reduce their tax rate on investment income by 8%.

Trusts have an income tax rate of 33% but can elect a PIR of 30% and effectively reduce their tax rate on investment income by 3%.

If you have any questions about the tax consequences of any investments or what the most appropriate PIR for you might be please contact HWI .

Cash PIE's

Most banks are now offering PIE’s (known as Cash PIE’s) as alternatives to Term Deposits and marketing the tax advantage of using a PIE as providing a greater return. While Cash PIE’s can be tax effective and still provide the security of a Term Deposit, there are still a number of issues that you need to consider when investing in a Cash PIE.

• Cash PIE’s are a type of Unlisted PIE, it is therefore very important to elect the correct tax rate or PIR in order get any tax advantage from the PIE structure.
  
  
• We have heard of some banks offering lower interest rate than their Term Deposits, this dilutes the advantage of the PIE structure. It is important to compare that the overall return after tax of Cash PIE’s and Term Deposits to ensure that the best form of investment is chosen.
  
  
• Although Cash PIE’s are currently covered by the government’s bank guarantee scheme, they will not be covered after 12 October 2010 where as Term Deposits up to a total of $500,000 per investor will still be covered.

If you have any questions about electing your correct PIR or would like help comparing the returns from Cash PIE’s and Term Deposits please contact HWI.